Book Review: Coal Plant Cancellations
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Coal Plant Cancellations: Time to Panic?

Reviewed by Jason Hayes, Communications Director, American Coal Council

Originally web-published: Tue, 2008-03-04 13:13

In a short, but concise review of our dynamic coal and gas markets, the Wood Mackenzie Gas and Power Service Insight team provides some answers to the question of whether the recent coal plant cancellations and postponements are sufficient reason to cause panic in the coal industry, or in the broader energy industry.

Recognizing that increased environmental and social pressures are pushing regulators and businesses to reconsider their plans to build coal-fueled generation stations, the authors of “Coal Plant Cancellations” look at the longer-term implications for this surge in permit denials.

Beginning in the early 2000s, there was a recognition of burgeoning energy demand and a corresponding push to have new generation capacity permitted. Much of the proposed capacity additions were coal-based. However, since that time, growing concern over the potential impacts of climate change have caused regulators and elected officials to deny permits, or cancel/postpone construction plans, for over half of those proposed coal plants. Despite those cancellations, worldwide energy demand continues to grow along with the need to supply abundant and affordable energy.

The report recognizes the growing demand for energy and compartmentalizes the issue of plant cancellations into two separate time frames. A shorter-term outlook (2008-2011) and longer-term (2012-2017). In the short term, the report authors suggest that currently permitted and developing coal-fueled resources will ensure that recent plant cancellations have little to no impact on overall energy supplies or prices. (They note that once permits are in place and construction has begun, it is unlikely that a project will be canceled.) As new renewable and gas-fired capacity is generally moved through permitting processes very quickly, the report authors suggest that when local demand is influenced by a cancellation, new gas and renewable capacity is predicted to bridge the shortfalls in short-term demands.

Longer-term, the authors forecast that the combined impacts of permit denials and increased demand for gas will cause significant pressures on gas supplies and prices. Growing competition for natural gas between industrial users, home users, and utilities is predicted to meet up with plateauing domestic natural gas production in 2013. Energy demand will force a greater reliance on imports and, by 2017, gas prices are expected to rise as high as $8.50/mmbtu. Continued reliance on the often slow development of LNG import facilities is expected to exacerbate price volatility and spikes.

Moving beyond the 2017 time frame, the report authors suggest that if coal-fueled power remains restricted, there will be serious negative impacts on the gas and energy markets as demand and prices continue to surge.

The report provides readers with several graphs as well as other information that compares proposed plants with the plants actually making it to the construction stage and then on to completion. A quick and to the point read, this report will provide readers with a better understanding of the broader impacts of the rush to deny coal plant permits. It also answers the question of whether or not it is time to panic with a cautious, “not yet.”